There’s no doubt that consolidation is occurring across all industries, including agriculture. In a recent webinar, a producer asked a very intriguing question, “What are your thoughts about the future success of small and midsize farms and ranches, given rising input costs and increased land values?”

First, one size does not fit all when it comes to U.S. agriculture. A small or midsize farm business can thrive given the following conditions.

1. Smaller farms must maintain low overhead costs. Sometimes this includes collaborating with others and sharing machinery, equipment, facilities and, in some cases, accounting or other professional services.

2. The small segment can be viable with some outside income to supplement cash flow. This is being observed with young farmers and ranchers generating dollars both inside and outside the agriculture industry. Supplemental cash flow could come from a variety of sources ranging from being a welder or trucker to a marketing, crop, or livestock consultant. Many individuals are finding part-time or full-time jobs with the flexibility, hours and benefits that can complement an agricultural enterprise. Often the benefits of diversified revenue sources are not only money, but the synergy of being exposed to new ideas and individuals that can energize the agricultural business.

3. Next on the list is modest family living withdrawals. Today, family living costs sometimes average between $80,000 and $100,000 annually. If this cost is dialed back to $50,000-$70,000 per year, a considerable amount of free cash flow will be available for smaller operations.

4. A strong business IQ is very important. Often, smaller enterprises focus more on efficiency of operation than growth. Financial factors such as margin management and capital turnover are part of their financial dashboard.

5. Many smaller and midsize operations are focused on niche markets. This is particularly true with producers who enjoy the people and marketing aspects. They know how to differentiate the product or service, either through production or marketing techniques, to align with the consumer.

For many, success is coined in terms of family involvement in the business. Having a work-life balance and enjoying the special, little things daily brings much fulfillment to this group, beyond just the monetary compensation. Small and midsize businesses can thrive with a management mindset and outside of the box thinking.

Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension and other popular publications.

© Northwest Farm Credit Services 2021